I have a friend who always shows up to everything. UFC? He’s down. Bible study on Sunday? He’s down, too, and he’s not even Catholic!
He has severe FOMO – Fear of Missing Out. Let’s just say you don’t want to have FOMO regarding Crypto.
Here are some tips for dealing with FOMO:
- You can’t catch em all – there’s always another opportunity.
- Better to be early for the next one than late for this one.
- Know your circle of competence & stay within it.
- Set rules like waiting for 24 hrs before buying.
You gotta get your FOMO under control, or you’ll be chasing every crap coin out there.
Here’s what we got today:
- The next multi-billion stablecoin. Ethena started its points program.
- My best 2023 DeFi strategy. An introduction to concentrated liquidity.
- Around the web. KelpDAO introduced $KEP, Bittensor released $stTAO, Worldcoin overtook Solana in FDV, and more.
Today’s email is brought to you by nftperps — long or short NFTs.
Here’s your Edge 🗡️!
Ethena: the new Terra Luna?
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What if I told you about a stablecoin that offers a 20%+ staking rate? If you’re feeling a little PTSD, then you might remember a similar project last cycle called Terra Luna.
In May 2022, $LUNA had a market cap of ~$41 billion. Then its stablecoin went to zero. And by June 2022, the MC had nosedived to ~$200 million.
Luna’s growth to billions was partially due to its niche: a censorship-resistant stablecoin that offered a 20%+ yield. Well, a new candidate is here.
And plot twist: this time, it isn’t a scam.
What is Ethena? It is the protocol behind USDe, a stablecoin that currently offers a 27% yield for staking.
All stablecoins must deal with a basic trade-off: they can either be censored, or they can’t be scaled. USDC and USDT can be censored. LUSD from Liquity can’t scale because ETH backs it. Even “decentralized” stablecoins like DAI and FRAX are partially backed by US T-bills.
So, even those can be censored.
USDe is a scalable stablecoin that doesn’t depend on TradFi in any capacity. So, it can’t be censored. But remember, it isn’t “decentralized.” It still depends on a few crypto institutions.
How does USDe work? In short, it uses a delta-neutral strategy to maintain collateral backing. Strategies are called delta-neutral when the portfolio isn’t exposed to underlying asset price movement.
KYC’d users can mint $100 USDe by depositing $100 stETH. At the same time, Ethena opens a short perpetual position for $100 ETH on CEXes. This means that tokens are fully backed at all times.
- ETH price stays the same = USDe is backed by stETH held by the protocol
- ETH price goes up = stETH held by the protocol is now greater in value.
- ETH price goes down = the short position pays for the drop in the stETH price.
If you’d like, you can read more about how Ethena is backed here.
Arbitrageurs maintain this peg. KYC’d users can redeem 1 USDe for $1 stETH and vice versa.
- So, whenever USDe is below $1, they are incentivized to buy USDe and redeem it for stETH.
- And if USDe is above $1, they are incentivized to mint USDe for stETH and sell it for more than $1.
Users can get sUSDe by staking USDe. And right now, the yield on sUSDe is 27.64%.
Every coin has two sides. Naturally, people have many concerns about USDe. Let’s go through a few of them:
1. Isn’t this just like Luna? No. Luna’s stablecoin, $UST, wasn’t backed by any exogenous assets. And therefore, its 20% yield wasn’t backed by anything either. In other words, it was a Ponzi scheme.
USDe is backed by stETH and short positions. And its yield is backed by the yield from stETH and the funding rate from short positions.
2. What about other delta-neutral stablecoins? UXD and Lemma Finance have previously tried similar designs. However, they didn’t have LSTs like stETH, which is yield-bearing. And they only used onchain volume for short positions. USDe also uses CEX volume, which offers better rates and greater room for growth.
3. What if funding rates turn negative? Right now, USDe gets paid for opening $ETH short positions. But in the future, there might be periods in which Ethena will have to pay for those same positions.
Exactly for those situations, they have set up an insurance fund. They’ll have to start closing the short positions when that dries up. At that point, their backing will temporarily be affected. And users might start redeeming USDe.
Based on historical data, Ethena is essentially counting on negative funding rates to be a short-term phenomenon that can be overcome through insurance funds.
There are other risks associated with USDe. You can read about risks and mitigating strategies here.
Edgy’s take: Yes, there are a bunch of risks. But I think this project is worth looking at.
Their cap table alone can pump any project to the moon. It includes top VCs like DragonFly and Binance Labs. Influencer heavyweights like Cobie and Arthur Hayes are also included.
Their target niche is quite large. Remember, Luna had a $40+ billion market cap. This team is aware of potential risks and actively mitigates them.
They opened to the public only three days ago. And it already has $350+ million in market cap. They’ll probably continue at this massive growth rate.
They haven’t released a token yet. Right now, the best way to get exposure to Ethena is by participating in their points program, Shard Campaign.
Shard Campaign will either last three months or until USDe hits a $1 billion market cap. It’ll be divided into different epochs. And each epoch will reward different activities.
For the first two weeks, they award most points to those who provide liquidity for Curve USDe pairs and lock in those LP tokens.
You can read more about their points program here.
nftperp: Long or Short NFTs
Do you want to convert your NFT market insights into $$$?
Can you predict the floor prices of NFT blue chips like Punks and BAYC? Then, speculating on floor prices using perps might be a lucrative opportunity for you.
How can you do that?
Enter nftperp. They allow you to long or short NFT floors using perps:
- Trade using $ETH. You don’t need NFTs.
- Thanks to FusionAMM, you will get the best prices.
- Many types of orders are available: market, limit, take-profit, and stop-loss.
- nftperp is on Arbitrum. So, gas fees are significantly cheaper.
Do you want to bet on the house instead of the individual players? Then provide liquidity on nftperp. You’ll get yield from trading fees and token incentives. And since their AMM uses concentrated liquidity, it’s highly capital efficient. So, using ranges, you earn higher fees using less capital.
nftperp v2 isn’t available to the public just yet, only whitelisted users can access it. But they are giving insane $vNFTP incentives to these early users.
nftperp has given 75 spots to The DeFi Edge readers. The first 75 people to click this link can skip the whitelist and start trading today.
Introduction to Concentrate Liquidity Strategies
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If you have never heard of CL, you are not doing enough to optimize your liquidity.
CL, or Concentrated Liquidity, is a way to provide liquidity and earn swap fees and incentives (when available).
CL is a liquidity farm method that automatically utilizes smart contracts to concentrate liquidity within a specific price range.
This makes it more efficient for traders to trade and also reduces the risk of impermanent loss for liquidity providers.
In the above example, the liquidity provider was pairing WETH/FXS on Uni V3, collecting fees from both tokens.
Don’t get lost on screen; check “total_fees” on the right for a sneak peek of the earnings.
There are multiple ways and protocols to do this. With this series, we want to educate you on the pros and cons of providing concentrated liquidity and what it means. We hope to introduce you to the technology and teach stuff that took us hours to figure out.
The engine of the market
Providing liquidity has always been an important part of TradFi.
The liquidity supplier is often a significant financial entity (such as a bank) that trades financial instruments on a larger scale.
In other words, they dispose of such large amounts of money that market participants, when selling their assets, are likely to choose to buy from them.
Thanks to liquidity providers, there is always a buyer and a seller in the market.
Aka, when you make a purchase, you are likely not buying from the seller to whom your broker has sent the transaction, but actually directly from your broker.
These brokers are called “market makers,” representing counterparties.
In crypto, we have AMMs (Automated Market Makers) –software algorithms that control the liquidity (or dry powder) and the pricing of crypto assets on decentralized exchanges.
In a decentralized crypto market, the constant buying and selling of currencies requires large reserves of various assets to facilitate retail transactions.
These reserves are created by users who provide liquidity in exchange for a share of the transaction fees.
Does size matter?
It depends on where you want to provide liquidity. Doing it on the main net will be a costly undertaking.
You have to consider gas fees in the scope of your investment.
Another aspect to consider is how much you have to manage your positions actively. The more you adjust the range, the more in gas fees you are likely to spend.
Doing so on L2s will be much cheaper than doing it on mainnet.
I suggest a nominal size of 15-20k on mainnet if the gas fees are high and 1k on L2s.
Do consider practicing on L2s as it’s cheaper, so a mistake won’t cost you that much to rebalance.
Liquidity in ticks
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UniSwap docs do a great job explaining the functionality of “ticks” in liquidity.
“To achieve concentrated liquidity, the once continuous spectrum of price space has been partitioned with ticks.
Ticks are the boundaries between discrete areas in price space.
Ticks are spaced such that an increase or decrease of 1 tick represents a 0.01% increase or decrease in price at any point in price space.
Ticks function as boundaries for liquidity positions.
When a position is created, the provider must choose the lower and upper tick representing their position’s borders.”
This video from Finematics is a must-watch if you want to learn more.
If you still require clarification, please note that before concentrated liquidity, it was only possible to provide liquidity to the entire range of the pool.
This is called single-sided liquidity.
Right now, however, you can limit (or concentrate) the liquidity to a specific range and therefore optimize your position.
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As mentioned earlier, this is just a snippet of our guide to this powerful tool.
By the way, you guys requested more DeFi strategies so we wrote this article in response. Let us know what other strategies you want with this quick 2-question survey.
🪂 Airdrop Alpha
MilkyWay, an $TIA LST provider, launched its mPoints program. 10% of the total supply will be distributed to mPoints holders.
Starknet’s airdrop claim portal went live. It is distributing more than 700 million STRK to nearly 1.3 million addresses.
Pandora holders were airdropped 5% of Palette token supply. $PANDORA has become an airdrop ve(3,3) play.
Ronin stakers will be airdropped 20 million $PIXLES by the Pixels game. $RON has the potential to be airdrop ve(3,3) of web3 games.
Kelp DAO introduced $KEP, a tokenized representation of EigenLayer points earned through their platform. It’ll bring liquidity to Eigen points.
Shuffle, a crypto casino and betting platform, will airdrop $SHFL token in the coming weeks. Airdrop will happen in three rounds. And the snapshot for the first round was taken on Feb 1st.
🚀 DeFi Catalysts
Tensorplex Labs introduced stTAO. You can stake wTAO on Ethereum and get stTAO, a reward-bearing LST, in return.
Redacted Protocol and Vector Reserve agree to do a treasury swap of their ETH derivatives, $pxETH and $vETH respectively, to increase liquidity for them.
Thruster introduced Baseline, a tokenomics engine for ERC20 tokens. It’ll provide native credit, baseline value, and deterministic market-making for tokens.
Liquity introduced a vision for a new stablecoin with improvements such as user-set interest rates, better redemption protection, and more.
Euler Labs teased the release of Euler v2 tomorrow. They’ve already introduced Ethereum Vault Connector, a primitive in its v2.
📰 Industry News
Worldcoin set a new all-time high after OpenAI released Sora, a text-to-video AI model. The FDV of $WLD even overtook that of $SOL.
Justin Sun announced plans for a Bitcoin Layer2 solution from Tron. Tron is the home for a large chunk of the stablecoin volume.
Yuga Labs acquired PROOF, which includes PROOF Collective, Moonbirds, Oddities, Mythics, and Grails exhibition series.
Linea‘s Alpha v2 is live on the mainnet. The new upgrade will make Linea faster and cheaper.
Injective launched an omnichain domain name service on mainnet. Users can now transact across Solana and Injective using the same domain.
🧠 Twitter Alpha
- GCR Interview on Arkham. Plenty of alpha.
- Circle ending USDC partnership on TRON.
- Reminder to stay vigilant.
- Metamask active users doubled from Sept 2023.
- DYM snapshot leaked?
